January 10, 2018 / 8:54 PM / 5 months ago

UPDATE 1-Strong 10-year auction stabilizes U.S. bond market

 (Recasts first paragraph, adds comment)
    NEW YORK, Jan 10 (Reuters) - Strong demand at a $20 billion
U.S. 10-year government note sale on Wednesday stabilized a bond
market that was rattled by a Bloomberg report that said China
may pare or stop buying Treasuries because it sees them as
unattractive amid rising U.S.-China trade tension.
    China is the biggest foreigner holder of U.S. government
debt, totaling $1.19 trillion at the end of October.    
    The latest auction, however, did not quell worries of a
renewed selloff that already pushed 10-year yields near 2.60
percent, which were their highest since March earlier Wednesday.
    "It wasn't the blowout auction that might have been expected
at such high yield levels but 10s did face the headwind of
fairly negative momentum," BMO Capital Markets interest rates
strategist Aaron Kohli wrote in a note on the auction.
            
    In addition to the report of possibly less Chinese buying,
U.S. yields have been lifted by the Bank of Japan's move on
Tuesday to reduce its bond purchases, which raised worries about
growing debt supply on the open market globally.             
    At Wednesday's auction, investors scooped up nearly 80
percent of the 10-year Treasury supply with fund mangers,
foreign central banks and other indirect bidders accounting for
their biggest purchase of this debt maturity since August 2016.
            
    The latest 10-year supply fetched a yield of 2.579 percent,
which was the highest since July 2014, Treasury data showed.
    The ratio of bids to the amount of 10-year notes offered
             was 2.69, which was the strongest since June 2016.
The gauge of overall auction demand was 2.37 at the previous
10-year note auction               in December.             
    The robust auction results kindled appetite for Treasuries
on the market, sending their yields from their session peaks.
    At 3 p.m. (2000 GMT), the 10-year yield was 2.549 percent
           , up marginally from Tuesday, Reuters data showed.
            
    Some analysts reckoned the robust demand stemmed from buying
to exit bearish bets against 10-year Treasuries, and the high
cost of borrowing them in the repurchase agreement market,
reducing the chances of a snapback to lower yields.
    The 10-year auction was the second leg of this week's
three-part sales of coupon-bearing Treasury securities.
    The Treasury Department, which sold $24 billion of
three-year notes on Tuesday, will auction $12 billion in 30-year
bonds                at 1 p.m. (1800 GMT) on Thursday.
    "Auction color aside, we would be careful and not rush to
judgment that this was another turning point and great buying
opportunity," said George Goncalves, head of U.S. rates strategy
at Nomura Securities International in New York.
  

    
 (Reporting by Richard Leong; Editing by Jonathan Oatis and
Chizu Nomiyama)
  
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